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The Australian Dollar (AUD) has gained momentum due to the Reserve Bank of Australia’s (RBA) interest rate trajectory. Consumer Inflation Expectations in Australia have increased from 4.6% to 4.8%. Despite positive US economic data, the US Dollar (USD) remains defensive. The AUD has recovered from recent losses and may be supported by the rise in Australian Consumer Inflation Expectations. The Melbourne Institute reports that Consumer Inflation Expectations for October are at 4.8%, up from 4.6% in September. This increase reflects the modest rise in consumer expectations regarding inflation, which may be influenced by higher oil prices. The surge in petrol prices likely impacts consumer expectations about future inflation. Additionally, the AUD/USD pair could strengthen as the possibility of another interest rate hike by the RBA increases. The US Dollar Index (DXY) is struggling to maintain its position around 105.70. This is partly due to the downbeat US Treasury yields. Despite positive economic data from the US, the USD faces challenges. There is speculation that the US Federal Reserve (Fed) may abandon the idea of a rate hike. This speculation is fueled by dovish comments and neutral postures from key officials, adding uncertainty to the currency’s outlook. The Australian Dollar has retraced recent losses on higher Consumer Expectations. Inflation in Australia has rebounded in August, driven by elevated oil prices. This raises the probability of another interest rate hike by the RBA. The geopolitical tension in the Middle East adds complexity to the situation, potentially prompting the RBA to implement a 25 basis points (bps) interest rate hike, reaching 4.35% by the end of the year. The increased demand for commodities, particularly energy and gold, is positively impacting the AUD/USD pair. Australia’s Westpac Consumer Confidence improved in October. The US Producer Price Index (PPI) surged in September, surpassing expectations. However, US Treasury bond yields experienced losses, reaching the lowest level at 4.54%. The FOMC minutes revealed a divergence of opinions, emphasizing the importance of data reliance. Speculation about the Fed potentially abandoning a rate hike gains momentum from dovish comments and neutral stances from officials. Fed Governor Christopher Waller advocates a watchful approach to rate developments, while Fed Governor Michelle Bowman leans towards another rate hike. The release of the Consumer Price Index (CPI) and weekly Jobless Claims report on Thursday will provide further insights into the economic landscape. In technical analysis, the AUD/USD pair is consolidating near 0.6420, with immediate resistance at the 23.6% Fibonacci retracement level at 0.6429. A breakthrough at this level could lead to upward momentum towards the psychological milestone of 0.6500. On the downside, a key support level is situated around the 14-day Exponential Moving Average (EMA) at 0.6400. These levels serve as important indicators for potential shifts in the AUD/USD pair trajectory.
